You ll see lots of freehold land and villas advertised for sale in Bali. But, under the laws of Indonesia, foreigners cannot own freehold land. So you can buy it but you can t own it. How can that be? As always in Indonesia, there are ways some more legal than others. Converting Freehold (Hak Milik) to Right to Use (Hak Pakai). This is a perfectly legal way for you to have your name on the title of property in Bali, or anywhere in Indonesia. Basically, the freehold title is converted to a 25 year government Right to Use (Hak Pakai) title with your name on it. It can be renewed every 25 years for the payment of a nominal fee of 2% of the value of the land at that time. Or can be converted back to freehold at any time if, for instance, you wanted to sell the property to an Indonesian who preferred full freehold. Or you outlived the law, which, so far only projects for another 75 years. 1 / 14
On the property market, Right of Use property sells for the same price as freehold property and has advantages, apart from the document simply being in your name. If you are selling to another foreigner. The Hak Pakai title simply passes on to them and is then registered in their name. They don t have to re-convert. The Right to Use Title does not lose any value as it nears expiry, like leasehold, as it is underpinned by the freehold value. It attracts capital gains exactly the same as freehold. It is a Right of Use. Not a rental or lease. Hak Pakai first came into law in 1992 as a way for foreigners to have rights over freehold property without having to own it. It is perfectly safe and built into the Law of the Land. The Nominee System. Essentially, you buy the property using an Indonesian nominee, whose name appears on the title. So, 2 / 14
you pay the money and, essentially they own the property, to get around the law. This has become a common way for foreigners to buy but it has a few problems you must be aware of. If you decide, or are persuaded to use a nominee for expedience sake, make sure you have a very good Notaris that you appoint yourself. Never use the seller s Notaris. Or the seller s nominee. Your nominee has to be encircled by a series of protective documents to prevent the nominee, or one of their relatives, claiming ownership at some later date especially if the original nominee dies, or, Heaven forbid, you die and the property becomes part of your estate. Not that you d be too worried. These encircling documents may include a Statutory Declaration, a lease or mortgage, a Power of Attorney and whatever else your Notaris deems necessary to protect your interests. As I said, this has become a common way for people to buy freehold property here, but it is not strictly legal. 3 / 14
And it can be expensive. Be careful to examine the suggested nominee costs before you sign anything. It is now becoming common for a suggestion of fees up to 5% for becoming a nominee. And then another 5% when you want them to sign when you sell. Outrageous! It is quite possible, if you haven t been properly covered, that your nominee has you over a barrel. Be careful. Talk to your Notaris and, as I said before, make sure your Notaris is good one. How to choose a Nominee. Rule Number 1: Don t use your Indonesian girlfriend or boyfriend. Or even your Indonesian spouse, unless you can encircle them with protective documents, as you would a stranger. Even the greatest loves can go sour and you don t want the extra heartache of a fight over property. Believe me. Your Agent or Notaris will have some suggestions. Listen to them but watch the costs. 4 / 14
Whatever you do, don t! Don t let anybody persuade to use the same nominee as the previous owner, should you buy from another foreigner. Be careful! It may be expedient but better to break the chain of Indonesian ownership for the property and get the strongest possible encircling documents directly between you and your own nominee. Remember, you are basically taking advantage of a loophole in the law and, as with all loopholes, trust nobody. Converting to Right to Build (Hak Guna Bangunan) This as another safe, legal way to buy land or to buy an existing villa with HGB title. Generally speaking, this is mainly undertaken by larger investors building resorts or villa complexes. 5 / 14
In this scenario, the original buyer forms an International (PMA) company, which purchases the unimproved freehold land and converts it to a renewable, 30 year Right to Build title, in its own (the company s) name. For most of us, the HGB (Hak Guna Bangunan) title only comes into play if we are buying a villa in a development or resort complex that has been built by a foreign company. It is not something to be afraid of. It is perfectly safe and legal. There is no need for you or subsequent buyers to form a company to buy. It is just a straightforward purchase. No nominees, no worries. As with Right to Use, the Right to Build title does not restrict capital gain. It s the same as freehold. Buying leasehold. (Hak Sewa) To many foreigners, the concept of leasehold land is very foreign indeed. But it definitely shouldn t be when you re considering investing in Bali, as Leasehold has many advantages. 6 / 14
Firstly, much of Bali s choicest land is only available as leasehold for several reasons. The first of these is that many Balinese do not want to part with their heritage, on an emotional level. Also, the property may have several owners, being the children of the original owner who has died and the property has been divided amongst. These siblings often find leasehold is easier to deal with. Leasehold also makes it easy and inexpensive for local owners to make money from leasing a portion of a larger piece of freehold land without having to subdivide and create separate titles, which is a long and expensive business. Another common reason is that the land belongs to the village Temple and simply cannot be sold. These are just some of the reasons. So clear you mind of the prejudices of wherever you come from and give lease a chance! 7 / 14
Advantages of leasehold. 1. Leasehold is entirely legitimate under Indonesian Law. It is as strong as leasehold anywhere else in the world. You can lease all or part of an original title from a land owner in your own name. You don t need nominees or to convert the title to something else. It is really easy. 2. Leasehold is immediate. There is no long wait for the re-issue of a title. 3. Leasehold gives you less exposure. It costs, roughly 1/100th You can stick the difference in the bank. 4. It is simple and inexpensive to sub-lease all or part of the property you have leased to someone else. And for them to do the same. So, if you lease 1000m2 of land, you can build the villa of your dreams on part of it and sub-lease the rest to somebody else. Get back some of your building costs. 5. The rules for building on leasehold land are exactly the same as for freehold. 8 / 14
6. A lease will usually contain the option for a further leasehold period after the original has expired. 7. The conditions set out in the original lease carry on through any sub-lease, so there can be no hankypanky. 8. Tax is much less on leasehold property. 9. Should you die, or the owner of the land die, the lease and all its provisions are not affected in any way. It just becomes part of your estate. Same for the land owner. 10. Leasehold land goes up in value the same as freehold, percentage-wise, so there is capital gain to be made, at least for the first few years of a lease. If you sub-lease a property with only a few years left on it, make sure you bargain really hard. So, my advice is to put aside any preconceptions you might have about leasehold where you come from and put it high on your list for investing in Bali. 9 / 14
Let s take a close look at why you want property in Bali: Is it because you want to live the rest of your life on the Island of the Gods? How long will that be? More than 25 or 30 years? Are you looking for income? Might it not be better to build or buy 2 or 3 leasehold villas than 1 freehold? Are you looking purely for capital gain? Better buy freehold, in that case. Do you want to have something to leave to your children? Hmmm. Will they really want it when their careers are in London, Madrid or Sydney? Probably not. Better to leave them the money in the bank the money you saved by buying Leasehold. Choosing a Real Estate Agent. Unless you have lived in Bali for a long time, you are much better off buying with a top Agent. 10 / 14
That s us. Bali A List Property. Someone you can trust to look after your interests especially if you are living somewhere else. Doing it by yourself is fraught with danger and frustration. Just because the laws are different, the system is different and there are complications with money transfers, exchange rates and getting contracts drawn and getting your Due Diligence done. It s a bit of a minefield. If you let us look after you, even if we don t have what you are looking for in our extensive listings at www.balialist.com, give us a brief and we will find what you are looking for. It will go something like this: You come and see us when you are on holidays here. We find the property of your dreams for you. You will pay a holding deposit of, say Rp 20 million ($2000), which gives you an agreed time to 11 / 14
transfer the full deposit (usually 10%) here. We will recommend and introduce you to a top Notaris to handle your purchase. You will sign a Sale and Purchase Agreement, with the seller, that sets out the terms of the sale. You will transfer the 10% deposit (in to the Notary s Escrow account to be held while the Notary checks out the full details of the property. Once the property has been checked out, you will sign the final papers in front of the Notary having evidence that the other 90% of the money has been transferred to either the Notary or the Seller, depending on the terms and conditions. If the property is freehold, a nominee will be arranged for you or you can introduce your own. If you pay the Holding deposit and fail to pay the full deposit, the holding deposit will be lost. If you pay the full deposit and the property fails its due diligence all deposits will be returned to you. If it passes its 12 / 14
due diligence and you fail to pay the remainder, you could lose your deposit. Just so you know. Choosing a lawyer. You don t need a lawyer to buy property in Indonesia. Just a notaris. Only notaries, with the initials PPAT after their name are allowed to preside over the transfer of land titles. Notaries here are government functionaries. They have a Master s Degree in their branch of Indonesian Law. A good Notary knows all there is to know. And while they are independent in any purchase, as the buyer, you pay their fee and they will give you all the advice you need. Choosing a Notary Once again, we are here to help. You must use a Notary from the Regency where the property you want 13 / 14
to buy is located. There are 9 Regencies and each has slightly different rules. But, generally, the best notaries know each other will give guidance. It is normally important to appoint your own Notaris for your purchase. Often sellers will want you to use their Notaris for expedience sake but it is advisable, to be absolutely sure, that you have a fresh eyes examining all the documents. Once again, we will advise you on the best course of action. 14 / 14